Growing reserves guarantee stability of local currency — Prof Ncube 

Source: Growing reserves guarantee stability of local currency — Prof Ncube – herald

Debra Matabvu

ZIMBABWEANS can now keep their savings in Zimbabwe Gold (ZiG) as the local currency has become stable owing to a combination of measures that are boosting confidence in the unit and encouraging its wider use, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube has said.

He said the foreign currency reserves supporting ZiG, which had grown to US$1,6 billion by June, were being built from 5 percent of the surrender amount from exporters and royalties from minerals.

Responding to questions from The Sunday Mail, Prof Ncube said the reserves were critical in guaranteeing a stable exchange rate of around US$1:ZiG26.

“Building foreign reserves is a critical pillar of bolstering currency and general macroeconomic stability,” Prof Ncube said.

“In addition to the mineral royalties that go into foreign reserves, 5 percent of the surrender amount from exporters goes towards building reserves. This has gone a long way in adding to the $1,6 billion worth of reserves. This amount is more than 100 percent of the entire domestic currency, ZIG, in circulation. This has also reduced the gap or premium between official exchange rate and the parallel rate, and, hence, reducing harmful arbitrage activities. Confidence in the ZIG has improved as a result and one can now keep their savings in ZIG.”

However, one of the most significant interventions has been the reduction of the Intermediated Money Transfer Tax (IMTT) on ZiG transactions from 2 percent to 1,5 percent, while retaining the 2 percent rate for transactions conducted in United States dollars.

“The reduction in the IMTT from 2 percent to 1,5 percent for ZIG transactions, while maintaining it at 2 percent for USD transactions, has supported and encouraged the public to transact more in ZIG,” added Prof Ncube.

“This increases demand and use of the local currency, the ZIG. These differentiated transaction cost rates have turned IMTT into, not just a revenue mobilisation measure, but a potent instrument for the promotion and support of the local currency.”

The Government has also introduced tax compliance measures aimed at deepening the use of the local currency within the corporate sector.

Companies are now required to pay 50 percent of their quarterly corporate income tax obligations in ZiG, while taxpayers are expected to settle taxes in the currency in which they trade.

“Paying half the corporate taxes in ZiG means even if the company trades in USD, it will be forced to sell some of the USD to acquire ZiG in order to meet the tax obligation. Thus, business has embraced the ZiG, and demand for it is increasing.”

Minister Ncube says these measures have created additional demand for the local currency, particularly among businesses that generate most of their revenues in foreign currency.

The growing uptake of ZiG is viewed as an important step towards the country’s long-term objective of establishing a fully functional domestic currency system anchored in stability, confidence and sustained demand.

With reserves growing, exchange rate volatility easing and the share of transactions conducted in ZiG steadily increasing, policymakers believe the foundation for a durable and widely accepted local currency is becoming firmly set.

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